Growth and the firm-size distribution over the long-run (with Jonas Gathen)
- In this paper, we study the link between rapid economic growth and changes in the plant size distribution. We draw on 40 years of panel data on Indonesian manufacturing plants to show that as output grew by a factor of twenty-five, the average plant size doubled and very large plants strongly increased their shares of output and employment. To link these facts, we start with a statistical accounting exercise to decompose output growth into aggregate productivity growth, input growth and selection and reallocation effects. We show that the direct contribution of aggregate productivity for output growth in Indonesia is less than twelve percent. To explain output growth without a major role for aggregate productivity growth, we build a structural model of plant size dynamics that flexibly captures an endogenous co-evolution of aggregate output growth and changes in the plant size distribution. We directly estimate the model on the plant-level data and show that it fits remarkably well untargeted moments such as the average size and output evolution as well as the entire plant size distribution over time. In the model, output growth is driven by endogenous transition dynamics and we validate this choice via a novel empirical exercise that shows the importance of transition dynamics in Indonesian manufacturing. Growth driven by transition dynamics plays out over a long period of time because (1) it takes time to grow large plants and (2) we find that many plants are far from their optimal size.
Infrastrcuture and the firm size distribution (with Matias Busso)
- In this paper we study the causal impact of the expansion of infrastructure on firms. To do this, we measure the effects of the expansion of paved highways in Mexico from 2006 to 2018 on firm and location level outcomes.
